Warnings of Another House Price Bubble!

by Mark Johnston

Warnings of Another House Price Bubble!

It seems that the mortgage market is once again moving, rates are at an all time low, lenders are flush with government cash, and at last they are keen to hand it over.

The Royal Institution of Chartered Surveyors (RICS) published a recent survey which showed that home prices grew last month at their fastest rate since the market peak of November 2006. 

home_1002382cAccording to Right Move’s, a property comparison website, House Price Index, which is the UK’s largest survey of asking prices, revealed they have climbed 5.5 per cent in the last year.

Haart’s, the UK’s largest independent estate agent, Housing Market Monitor has also shown that the number of new buyers has climbed 27.9 per cent in the last year.

Therefore it appears that with the Bank of England’s base rate having never been lower and the new Bank Governor signalling that rates may not rise for three years, it is no wonder that more and more people are thinking about joining the property ladder.

Robert Gardener, chief economist at Nationwide, suggests that “while house prices are still elevated compared with incomes, affordability is being supported by the ultra-low level of interest rates,”

This recent data could therefore mean that the UK could once again face the potential consequences of a rapid increase in house prices last seen following the housing boom of 1997 to 2007.

Business secretary Vince Cable stated that “We must not risk returning to the problems of the last decade when housing got out of control.”

Therefore, some economists have warned that Britain may be flirting with ‘another runaway rise in house prices’.

However, only nine out of 29 economists surveyed said the prospect of another house price bubble is small.

The news of a potential housing bubble seemed to have raised fears among potential home owners that if they don’t take advantage soon, the affordability of their dream home may climb beyond reach.

Though rushing to buy could be a foolish and expensive mistake

Mark Harris, chief executive of mortgage broker SPF Private Clients, says “Buyers must also take care not to overstretch themselves; interest rates might not be rising until the third quarter of 2016 at the earliest but at some point they will.”

The new Bank of England governor, Mark Carney, has however said he will step in to prevent a house price bubble caused by low interest rates and the Government’s Help to Buy scheme.He also stated that he was “alert to the damage’ that could be caused by uncontrolled mortgage lending and surging house prices.”

Some industry insiders fell that all this talk of another UK house price bubble seems somewhat premature. It’s perfectly true that fed by foreign buying, London house prices are again rising off the scale, but viewed nationally what’s going on is not yet a cause for grave concern.

All this said, there is undoubtedly a big problem in the UK housing market. However, it is one of inadequate supply, not as yet another house price bubble.

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